The row made by Anil Ambani in his AGM a few days back regarding terms of Production Sharing Contract for KG Basin.
There is lot to it including the fact that Indian Government should legally resolve the violation of basic terms of Production Sharing Contract(PSC), which provides the legal framework for exploration, development and production of gas reserves. It should uphold the interests of taxpayers and safeguard them.
PSC usually does give the right to sell gas to any one. But it is not clear if this particular PSC has that clause or not. But PSC definitely will have the clause of selling gas at arm’s length and be market-based.
A price agreed by brothers cannot be considered to be arm’s length. Even if RIL agrees to sell gas at a lower price, the Government is not bound by such a clause since the Government owns all gas reserves, and PSC gives the right to take some portion of those revenues.
Infact, the Government has legal rights to refuse a lower gas price allegedly negotiated between the brothers based on the PSC. If the brothers were on good terms, no one would have found out about this deal.
PSC is an overriding contract, which controls the sharing of gas reserves between the investor that is RIL, and the Government. RIL is bound by the terms of the contract terms. Once RIL gets its share it can decide how to share it with RNRL. But the total lot of gas revenues and how it is shared between the Government and RIL have to be as per PSC.
So here its a lot that is at stake including billions of dollars depending upon how PSC is being implemented.
Unfortunaltely this contract is commercially very sensitive one and public doesn't have any access to it even by RTI.
So its upto Government and those higher officials to fix the best rate according to international markets and expected crude oil prices in the next 20 yrs because rates of gas fluctuates at the nerve of crude oil prices in long term. We have experts in the subject matter and they are expected to arrive at reasonable decision ignoring any sweetheart deals in the past. Here its economy that is on stake on a different note.
Anil Ambani is making a row just because he wants his own pie of "Production Sharing".. mind you its not Profit Sharing that is involved with this deal but Production Sharing is.
P.S.
The total control of the gas market today in India by the Government is a problem. Despite the recommendations of many high-powered committees, the Government has not liberalised the gas market.
Gas prices are fixed on an arbitrary basis by the bureaucrats in the petroleum ministry without allowing the market to decide. Even when India was paying international price to import LNG (liquefied natural gas) at as high as $12/ million British thermal unit (mmbtu) in 2008, the Government-owned gas production was sold at a throwaway price of less than $2.00/mmbtu.
Rest of it has all of us to think, wait and watch..
